Fannie and Freddie

This is apparently why the futures are going crazy tonight:
http://www.nytimes.com/2008/07/11/business/11fannie.html?_r=1&hp&oref=slogin

"Under a conservatorship, the shares of Fannie and Freddie would be worth little or nothing"

 

HAHAHAHA

I feel bad for longs. The stock is going to zero tomorrow. It's going to be interesting!!

 

I think it will only go to zero tomorrow if it is halted. If it's still trading, then it will be above $1

 

So who won't be shorting FNM and FRE at the open tomorrow? Any reason not to short?

 

How is this positive news?

 

No idea. How do they raise capital and keep writing mortgages to help the housing crisis?

"Mr. Bernanke said that Fannie and Freddie “are well-capitalized in the regulatory sense” but added that they, and other major financial institutions, needed to raise their capital levels further."

How exactly do they raise more capital if people think the shares may be worthless? Oh that's right, we the taxpayers will fund them, what a deal.

 

I'm already short a lot of FRE and FNM, but there is an outside chance that

(1) shareholders are given something more than zero
(2) the nationalisation does not happen, and the stock recovers
(3) something else that I haven't considered yet

So I am probably not interested in adding to my FRE and FNM short tomorrow

 

If nationalization does not happen, stock is heading to zero anyway. Just my thought on the issue.

 

I agree that it's going to zero anyway, however it's highly unlikely that it will be at zero at 9.30am ET.

 

While this news would be bad for F&F it should be a big positive for the financials in general as the government is now the counterparty in a lot of transaction and also because the main housing lenders would have essentially unlimited capital with which to make loans (buy securitized loans from banks) and pump the housing market.